Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
CFTC Announces Plans to open an Office for Fintech Innovation
The U.S. Commodity Futures Trading Commission (CFTC) announced its plan to open LabCFTC. This office will be the “focal point for the CFTC’s efforts to promote responsible Fintech innovation and fair competition for the benefit of the American public.” LabCFTC will provide a dedicated point of contact for Fintech innovators to engage with the CFTC, learn its regulatory framework, and obtain feedback and information about implementing technology ideas into the market based on existing law, CFTC regulation, and policy. To do this, the CFTC plans to: proactively engage with the innovator community to better understand how innovations interact with the regulatory and supervisory framework, collaborate with the industry and market participants to coordinate responsible innovation, participate in studies to foster responsible innovation, cooperate with financial regulators at home and overseas, monitor trends to ensure the regulatory framework does not stifle innovation, as well as engage with academics, students, and professionals to share information about the industry. LabCFTC will be located in New York and is intended to “bridge the gap” between today’s regulations and regulations for the 21st century for today’s digital markets. LabCFTC
New York Files Lawsuit against OCC Fintech Charter
The New York Department of Financial Services (NYDFS) filed an independent lawsuit challenging the OCC Fintech Charter. This lawsuit comes on the heels of another lawsuit challenging the legality of the proposed OCC Charter, filed by the Conference of State Bank Supervisors (CSBS). 4.28.17 Week-in-Review. NYDFS Superintendent Maria T. Vullo announced that lawsuit, filed in NY federal court, challenged “the decision of the Office of the Comptroller of the Currency (OCC) to grant special-purpose national bank charters to undefined ‘fintech’ companies.” The NYDFS complaint seeks “to stop the OCC from granting charters to institutions subject to New York State law that provide financial services to New York consumers based on the OCC’s unidentified and sweeping array of commercial ventures never before authorized or regulated by the OCC.” The NYDFS release describes the OCC’s charter decision as “lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other State regulators.” NYDFS Press Release May 12, 2017. The CSBS issued a statement in support of NYDFS’s lawsuit against the OCC. CSBS May 12, 2017 Statement.
Vermont Law Recognizes Digital Currency as a Permissible Investment
Earlier this month, Vermont Governor Phil Scott signed a bill into law which made clear that bitcoin and other digital currencies are considered permissible investments under the state money transmitter licensing requirements. VT H.182
Florida to Enact Law Adding Digital Currency to Money Laundering Act
The Florida Legislature unanimously approved an amendment to the state’s criminal money laundering statue, which clarifies the statute’s definition of “virtual currency” and makes it a criminal offense to use virtual currency in laundering criminal proceeds. Assuming the bill is signed by the governor, the statute is scheduled to take effect July 1, 2017. HB 1379 Text; HB 1379 History; 4.28.17 Week-in-Review; Source.
West Virginia Lawmakers Complete Bill Criminalizing the use of Cryptocurrencies for Money Laundering
The bill defines “cryptocurrency” as “digital currency in which encryption techniques are used to regulate the generation f units of currency and verify the transfer of funds, and which operate independently of a central bank.” The bill also adds the term cryptocurrency into the definition of “monetary instruments.” Any property or monetary instruments involved with violating the newly proposed bill would be subject to forfeiture. WV HB2585 Text WV HB2585 Summary WV HB2585 History
Congress Considers Bill Requiring Investigation of the use of Virtual Currency and Terrorism
Representative Kathleen Rice (D-NY) introduced HR 2433 to the House of Representatives this month, a bill that would direct the Secretary of Homeland Security for Intelligence and Analysis to develop and disseminate a threat assessment regarding terrorist use of virtual currency.
Congress Questions the IRS’s John Doe Subpoena for Coinbase
Last week, senior Republicans in Congress sent a letter to the Commissioner of the Internal Revenue Service, which suggested that the agency had overstepped its powers by requesting information about the IRS’s strategy for digital currency and recent events surrounding the IRS’s summons to Coinbase. Fearing that the summons sets a “dangerous precedent for companies facilitating virtual currency transactions that could be subject to a similar summons,” the legislators also remarked that based “on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.” Members of the Senate Committee on Finance and House Committee on Ways and Means requested a briefing from the IRS on these issues. Letter from Congress to IRS, dated May 17, 2017; 2.3.2017 Week in Review; 12.2.2016 Week in Review.
Dubai Regulators Announce Special Testing License for Fintech Startups
The Dubai Financial Services Authority (DFSA) released plans detailing its Innovation Testing License (ITL) on Wednesday. Under this plan, fintech startups in Dubai will be permitted to test their products under a restricted financial services license for 6-12 months, a period which can be extended by the DFSA. Successful applicants would then be required to obtain a full financial services license to continue formally operating, and firms that fail to meet the required outcomes will have to cease activities. This new license creates, in essence, a regulatory sandbox that will permit startups to experiment with new ideas with a temporary exemption from the standard regulatory requirements that regulated companies face. Source; Source
Indian Government Requests Public Comment on Virtual Currency Regulation
The Ministry is accepting input until May 31 and is specifically looking for input on the following questions: (1) whether virtual currencies should be banned, regulated or observed? (2) if virtual currencies should be regulated, how should India treat consumer protection, promote the development of virtual currency, and which institution should monitor? And (3) if virtual currencies should not be regulated, how should they be self-regulated effectively and what measures should be taken to ensure consumer protection? Since 2013, the Indian government has issued several warnings to the public to be aware of the risks of virtual currencies. However, since the country has been demonetizing, many citizens have been using virtual currencies as an alternative to the Rupee. Source
Regulators in Gibraltar Propose New Government Regulatory Framework for Digital Currency
The HM Government of Gibraltar, Ministry for Commerce, issued a paper entitled Proposals for a DLT Regulatory Framework. The paper establishes nine principles the country will require DLT firms to follow to ensure that the plan’s regulatory outcomes are achieved. The Minister for Commerce, Hon. Albert Isola, stated that he was delighted to publish the proposals for widespread public consumption and that he looked forward to receiving comments from the public. Public comments on the plan are due by June 6, 2017. Press Release; Proposals for a DLT Regulatory Framework
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.